Tracking eBay's Auction Count

Some eBay shareholders have been concerned by the lack of growth in the current auction count over the past few months. But management says not to worry, as the cumulative count is still growing: Auctions are now ending faster because of the "Buy It Now" feature. So, investors are armed with new knowledge, but have lost a valuable predictive tool.

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By Rex Moore (TMF Orangeblood)
June 5, 2001

For as long as eBay (Nasdaq: EBAY) has been a public company, individual investors have had a handy, useful tool for keeping track of its core business. Whether listed on eBay's home page or calculated by an independent service, the current auction count has always been freely available from different sources. As long as the line on the chart moved steadily upward, we at least knew not to expect a surprise meltdown come earnings time.

But the line on those charts recently stopped its steady, upward movement. For the first time ever, there were fewer items listed for sale on Feb. 1 this year than at the high mark the previous December. And there has been no growth since then: If anything, the count has dropped somewhat.

Is it time for eBay investors to panic -- maybe even pull the plug? Apparently not. CFO Rajiv Dutta says the total, cumulative number of auctions being listed on eBay, but excluding Half.com, is still growing -- it's just that less of them are listed at any one time. (The latter is what we see on the charts.) Why? Because, he says, of the overwhelming success of eBay's new "Buy It Now" (BIN) feature, which allows a user to buy an item for a fixed price, set by the seller, before the first bid is placed and before the auction's scheduled close.

Because of BIN -- currently featured on over a third of the total listings -- many auctions are no longer running for full five-, seven-, or ten-day periods. Many end within hours of being listed. The result is increased "auction velocity," or the rate at which auctions close. This velocity, explains Dutta, "drives down the item count at any one point in time and lowers  the burden on the servers."

That the leveling of the auction count seems to have a good explanation is good news for eBay investors. Unfortunately, we've lost a useful tool with which to measure the growth of the business on a weekly or monthly basis. It's far tougher to ascertain the cumulative number of auctions listed on eBay over a period of time, rather than the number listed at any one moment. And we'll only be able to see that number when the company releases earnings on a quarterly basis.

About a year ago, management removed the current auction count from the home page. We were told it was becoming less useful as a measure of the business. Well, eBay, you're now right about that -- thanks to Buy It Now.

But it also means we may have less information and understanding about our company in the future. While we've learned something new and valuable about the business, we're also left increasingly reliant on eBay's information for our analysis -- an odd turn of circumstance.

Rex Moore just finished reading Stephen King's Dreamcatcher. Wow! He owns shares of eBay. His holdings, and the Fool's disclosure policy, are now available in living color.

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